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What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns

John Ammer and John Campbell ()

Scholarly Articles from Harvard University Department of Economics

Abstract: This paper uses a vector autoregressive model to decompose excess stock and 10-year bond returns into changes in expectations of future stock dividends, inflation, short-term real interest rates, and excess stock and bond returns. In monthly postwar U.S. data, stock and bond returns are driven largely by news about future excess stock returns and inflation, respectively. Real interest rates have little impact on returns, although they do affect the short-term nominal interest rate and the slope of the term structure. These findings help to explain the low correlation between excess stock and bond returns.

Date: 1993
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Published in Journal of Finance

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http://dash.harvard.edu/bitstream/handle/1/3382857/campbell_whatmoves.pdf (application/pdf)

Related works:
Journal Article: What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns (1993) Downloads
Working Paper: What Moves The Stock And Bond Markets? A Variance Decomposition For Long- Term Asset Returns (1991)
Working Paper: What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns (1991) Downloads
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